Google’s Eric Schmidt expounds on his Senate testimony

A week after Google Chairman Eric Schmidt testified before the Senate Judiciary antitrust committee, he was back in California at the company’s headquarters in Mountain View. There on September 29, Schmidt — who until this April had served as the company’s longtime CEO — sat down with Washington Post On Leadership editor Lillian Cunningham and reflected on his first time testifying before Congress, what Washington understands and doesn’t understand about regulating technology, and where the connections and disconnects are between the Hill and the Valley.

He had just come from the dentist. And had a toothache.

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Executive chairman of Google Eric Schmidt discusses the one thing he believes Washington needs to know about Silicon Valley.

You recently testified before Congress in an antitrust hearing about Google. What are your reflections on the experience? Were the leaders there asking the right questions?

So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. Okay? I mean, I don’t know how to say it any clearer. I mean, it’s fine. It’s their job. But it’s not like we raised prices. We could lower prices from free to…lower than free? You see what I’m saying?

Where’s the disconnect between Washington and Google, or Silicon Valley more broadly?

Washington—having spent a lot of time there, I grew up there and have spent a lot of time there recently—is largely defined by detailed analytical views and policy choices that are not very good. You know, each policy choice has a winner and a loser, right? Somebody’s ox is getting gored. They’re complex arguments: They’re economic and political and social, and everyone has an opinion on those. Here, the arguments are, how do we make something that affects a million people? How do we change the economics of an industry?

And one of the consequences of regulation is regulation prohibits real innovation, because the regulation essentially defines a path to follow—which by definition has a bias to the current outcome, because it’s a path for the current outcome.

So what’s the solution?

I’ll give you a formula. This is an Andy Grove formula. So I’m sitting at this dinner in 1995—Andy Grove was the CEO of Intel—and he gives this speech, and he says, “This is easy to understand. High tech runs three-times faster than normal businesses. And the government runs three-times slower than normal businesses. So we have a nine-times gap.” And I said, “Works for me.” But all of my experiences are consistent with Andy Grove’s observation.

And so what you want to do is you want to make sure that the government does not get in the way and slow things down. We’ve now all developed an ability to lobby about this stuff. We want the government [to understand] if you want to manage something, manage the outcome you want. Don’t specify the technology. Right? In other words, regulate this thing but don’t tell us how to make it technologically. Because if you do, you’ve locked in an incumbent, a specific technological view, et cetera.

So as a leader at Google, how do go about getting the government to think closer to the way you do? It’s been written that Google has more lobbyists in Washington now, donates more money…

You should see what Microsoft did. Come on. Give me a break. The press is so young, they don’t understand the history here. We’re still a small component of what a whole bunch of other companies have done, and certainly most other industries. So I reject all such charges. And I’m very clear on that because people can’t do math. Take the numbers of the amounts of money that go into the regulated industries of all sorts—and then compare high tech, and compare Google in specific, and it’s miniscule.

And privately the politicians will say, “Look, you need to participate in our system. You need to participate at a personal level, you need to participate at a corporate level.” We, after some debate, set up a PAC, as other companies have. And it’s basically in the interest of our customers to do this, because the government can make mistakes. And for every one of these Internet-savvy senators, there’s another senator who doesn’t get it at all. And it’s not a partisan issue. It’s true in both parties.

What’s the answer?

You’re asking it the way an engineer asks. It’s not an answer, it’s a journey. If it were an answer, then after we had done our thing and told everyone to leave us alone, they would have left us alone. That’s not how Washington works. That’s not how government works. It’s naïve, on our part. So the modern model is that we spend a lot of time trying to make sure the government understands how large the contribution is that technology has made to the GDP of the country. One of our quotes: Fifteen percent of the GDP growth has been due to the two-and-a-half percent of the economy that’s IT. In other words, don’t screw that up.

Do you think that this administration seems to “get it” more than in the past?

You want to distinguish between the administration and the Congress. Each administration that I’ve worked with is full of younger people, and younger people are going to understand more the implications of technology. So for example, many senators now have Blackberrys or the equivalent. It means they’re finally beginning to use the technology. But that wasn’t true five years ago. Ten years ago, senators wouldn’t even send you an email message. Fifteen years ago, the government did not have a uniform naming scheme for email.

So what you see over and over again is the age of the people in government, plus the buying structure and the systemic nature, causes it to lag—this is the Andy Grove ‘three-times slower’ concept. So what do you do in that case? You have to show them. On a personal basis, I’ve spent a lot of time on this over the years. I’ve spent as much time doing this as anyone. The other people who’ve done a lot of this would be John Doerr and John Chambers. The three of us have probably spent more time wandering around over two decades.

Are the leaders in technology doing enough to work together? Are the lawsuits and the patent wars getting in the way of being able to help move the needle on these bigger issues?

The industry tends to agree on the things I’ve told you about. There’s not much disagreement. So we have funded joint lobbying and so forth. One of the things about being in California is you’re just not as focused on Washington. So when you go and you spend time with the little companies, they have no concept of why they would want to go to Washington. I remember thinking, “Wow, I have to go to Washington and talk to them?” It’s so foreign because when you’re in that zone, you’re busy inventing something that’s so obvious [that you think] everyone will love it and there’s no scenario where the government will prevent you from doing that.

Let me give you a counter example. Now there are startups in Washington. And these startups have the interesting property that they’re founded by people who were policymakers, let’s say in telecommunications. They’re very clever people, and they’ve figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they’re trying to innovate through the regulation. So that’s what passes for innovation in Washington. And again, God bless them. But they have a political strategy to get their particular legislation and niche approved. That’s unheard of here.

How has lobbying evolved for you, then?

The conclusion that we came to [as far back as when I was at Sun Microsystems] is that there are two kinds of lobbying. And this, I think, is grossly unfair but kind of true. There’s the kind of lobbying where you pay an ex-senator to get the current senator to write a sentence into a bill, and there’s no confusion as to what this is about. You are representing your corporate interest. It’s specific to your company. In Washington, for example, you can pay an ex-person $50,000 to arrange a meeting to get that process, to get those five sentences written in this bill, and so forth and so on.

The punch line is, we concluded that we didn’t want to do that as industry, and certainly not at Sun. We wanted to lobby based on ideas. And as far as I know, every company that I’ve worked with—and I was part of the Business Software Alliance and all these other groups—we all sort of agree with this. There’s a line that we’re not willing to cross. So what we do from a leadership perspective, at least in terms of political leadership, is we talk about ideas. And inevitably what happens is everyone says ‘yes,’ yet inevitably on the Hill you have an older gentleman or lady.

The staffers—and the staffers are young—the staffers get it. They’re 25, 30 years old and they all get it. So that’s what we depend on. And of course we’ve hired ex-staffers as well. They all know each other. So that’s how it really works. And I believe what we’re doing is extremely defensible if it’s around ideas. I would have a lot of trouble if we in our industry started following the other kind of lobbying.

What kind of ideas?

A classic example is H-1B visas. Now, the following arguments are so obvious, it’s hard for me to believe that anyone would believe that they’re false. These industries are full of very smart people. There are very smart people who don’t live in America. They come to America, we educate them at the best universities, they are smarter than I am, and then we kick them out. If they stayed in the country, let’s just review: They would create jobs, pay taxes, have high incomes, pay more taxes than the average American, and generally increase the GDP of the country. I hope my argument is clear, and if it isn’t I’ll start screaming about it. It’s the stupidest policy the government has with respect to high tech. So you have this conversation and people say “yes,” and you say, ”This is the single thing that you can do that will lead to innovation occurring in our country, and the future economic wealth of our country.” And then they don’t act.

I’m so tired of this argument. I’m tired of making it. I’ve been making it for twenty years. In the current cast of characters, the Republicans are on our side, our local Democrats support us because our arguments are obvious, and the other Democrats don’t—because they don’t get it. The president understands the argument and would like to support us, he says, but there are various political issues. That’s roughly the situation. That’s been true for twenty years, through different presidents and different leaders. It’s stupid. So my point is that if you want to get a sense of how to screw this up, to put it negatively, then make it harder for us to bring in the world’s smartest people.

Has there always been such disconnect?

Silicon Valley’s involvement with Washington dates from one event, which was John Scully—who was the CEO of Apple—had dinner with President Clinton and Vice President Gore in 1993. And we’re all going, like, what’s going on? Why would we have dinner with the president? And from that point on, people started to think it might be fun to hang out with these people.

So what happened was that there was something called the Clipper chip, which was the attempt by the government to enforce encryption on a particular communications aspect. And this was 1994. And it was the first time I know of that the Valley organized around a stupid technological thing that was going to be forced on us. This really had not occurred before. The chief proponent of the Clipper chip was Al Gore. So this is our first contact with Al Gore. All of us spent a lot of time and we eventually defeated it, but I think for many people that was sort of a wake-up call that the government could actually pass a law that was stupid, that would actually do something wrong and wouldn’t work.

You know, we had this naïve view of the world around here. So TechNet was formed after that. And then the way politics works is you have to make donations. Around here no one donated any money, whereas the other industries donated lots of money. So donations came. And then we had the bubble, so all of a sudden the politicians showed up. We thought the politicians showed up because they loved us. It’s fair to say they loved us for our money. And this was before caps were in place, so there’s this huge fundraising cycle in the late ‘90s. Republican and Democrat by the way. Everyone fed at the trough of money.

But at the time, we took the position of ‘hands off the Internet.’ You know, leave us alone. And that’s probably still the general view here. The government can make regulatory mistakes that can slow this whole thing down, and we see that and we worry about it.

Lillian Cunningham is the editor of On Leadership at The Washington Post. Follow Lillian and On Leadership on Twitter.

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